Articles Tagged with Failure to Supervise

shutterstock_188606033The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Brian Zimmerman (Zimmerman). According to BrokerCheck records there are at least 5 customer complaints that have been filed against Zimmerman. The customer complaints against Zimmerman allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, failure to supervise, and churning (excessive trading) among other claims. The most recent customer complaint against Zimmerman filed in July 2014 alleges that Zimmerman breached his fiduciary duty, negligence, and misrepresentations in the handling of the customer’s account leading to $128,405 in damages. The claim is currently pending.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client. In order to make a suitable recommendation the broker must meet certain requirements. First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors. Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

The number of customer complaints against Zimmerman is high relative to his peers. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must publicly disclose certain types of reportable events on their CRD including but not limited to customer complaints. In addition to disclosing client disputes brokers must divulge IRS tax liens, judgments, and criminal matters. However, FINRA’s records are not always complete according to a Wall Street Journal story that checked with 26 state regulators and found that at least 38,400 brokers had regulatory or financial red flags such as a personal bankruptcy that showed up in state records but not on BrokerCheck. More disturbing is the fact that 19,000 out of those 38,400 brokers had spotless BrokerCheck records.

shutterstock_123758422The securities fraud lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Keith Connolly (Connolly). According to BrokerCheck records there are at least 13 customer complaints against Connolly. The customer complaints against Connolly allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, failure to supervise, unauthorized trading, and churning (excessive trading) among other claims. The most recent customer complaint filed in October 2014 alleged churning, negligence, unsuitability, overconcentration resulting in damages of $187,855 in damages. The claim is still pending. In August 2014, another client filed a complaint alleging administering the customer’s brokerage accounts claiming damages of 776,326. The claim was resolved settling for $450,000.

As a background, when brokers engage in excessive trading, sometimes referred to as churning, the broker will typical trade in and out of securities, sometimes even the same stock, many times over a short period of time. Often times the account will completely “turnover” every month with different securities. This type of investment trading activity in the client’s account serves no reasonable purpose for the investor and is engaged in only to profit the broker through the generation of commissions created by the trades. Churning is considered a species of securities fraud. The elements of the claim are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions. A similar claim, excessive trading, under FINRA’s suitability rule involves just the first two elements. Certain commonly used measures and ratios used to determine churning help evaluate a churning claim. These ratios look at how frequently the account is turned over plus whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably profit from the activity.

The number of customer complaints against Connolly is high relative to his peers. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must publicly disclose certain types of reportable events on their CRD including but not limited to customer complaints. In addition to disclosing client disputes brokers must divulge IRS tax liens, judgments, and criminal matters. However, FINRA’s records are not always complete according to a Wall Street Journal story that checked with 26 state regulators and found that at least 38,400 brokers had regulatory or financial red flags such as a personal bankruptcy that showed up in state records but not on BrokerCheck. More disturbing is the fact that 19,000 out of those 38,400 brokers had spotless BrokerCheck records.

shutterstock_177792281According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Luigi Mancusi (Mancusi) has been the subject of at least 4 customer complaints. The customer complaints against Mancusi allege securities law violations that claim unauthorized trading, unsuitable investments, misrepresentations, failure to supervise, and breach of fiduciary duty among other claims. The most recent complaint was filed in July 2015, and alleged $250,000 in losses due to unauthorized trading from November 2012 through November 2014. Another complaint was filed in July 2013 where the client alleged fraud and unsuitable investments given the client’s age, risk tolerance, and income need. The claimant alleged $322,000 in damages.

Mancusi entered the securities industry in 1992. From November 2002, until October 2012, Mancusi was associated with Wayne Hummer Investments L.L.C. From September 2012, onward Mancusi has been associated with Oppenheimer & Co. Inc. Mancusi is also associated with David A. Noyes & Company out of the firm’s Lake Forrest, Illinois branch office location.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

shutterstock_184149845The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Ralph Savoie (Savoie) (FINRA No. 2015046239401) resulting in a bar from the securities industry alleging that Savoie failed to provide FINRA staff with information and documents requested. The failure to provide those documents and information to FINRA resulted in an automatic bar from the industry. FINRA’s document requests related to the regulators investigation into claims the Savoie misappropriated more than $665,000 from at least one member firm customer.

FINRA’s investigation appears to stem from Savoie’s termination from Cambridge Investment Research, Inc. (Cambridge) in August 2015. At that time Cambridge filed a Form U5 termination notice with FINRA stating in part that the firm discharged Savoie under circumstances where there was allegations that Savoie failed to disclose and receive approval for an outside business activity. It is unclear the nature of the outside business activities from publicly available information at this time. However, Savoie’s Brokercheck disclosures reveal several outside business activities including working for the Savoie Financla Group, LLC in Baton Rouge, LA and as being and independent insurance agent for various companies.

Savoie entered the securities industry in 1973. From March 2007 until July 2013, Savoie was associated with ING Financial Partners, Inc. Thereafter, from July 2013 until September 2015, Savoie was associated as a registered representative with Cambridge.

shutterstock_187532306According to the records kept by the State of Florida, Office of Financial Regulation brokerage firm J.P. Turner & Company, L.L.C., (JP Turner) was sanctioned (Administrative Proceeding: 0757-S-12/13) concerning allegations that the firm’s broker, John McGriskin (McGriskin) engaged in mutual fund switching, a form of churning, in client accounts.

From December 2002, until May 9, 2013, McGriskin was an associated person of JP Turner and worked out of the branch located in Palm Coast, Florida, in his home. According to Florida, McGriskin typically purchased Class A shares for his clients. Class A shares of mutual funds come with high front-end sales charges. Florida found that McGriskin sold Class A shares of one mutual fund company and used the proceeds to purchase Class A shares of another mutual fund company resulting in McGriskin’s clients being subject to additional front-end sales charges on those transactions.

In addition, many mutual fund families offer “breakpoint” discounts for total investment amounts equaling certain minimum thresholds across multiple funds with the same fund family. However, Florida found that McGriskin made six mutual fund switching transactions which were not in the same mutual fund family or issuer from August through December of 2010, thirty-six mutual fund switching transactions which were not in the same mutual fund family or issuer in 2011, thirty-seven mutual fund switching transactions which were not in the same mutual fund family or issuer in 2012, and thirty-six mutual fund switching transactions which were not in the same mutual fund family or issuer from January through May of 2013.

shutterstock_173849111On May 5, 2015, the brokerage firm Cape Securities, Inc. (“Cape”) was fined $125,000 by the Financial Industry Regulatory Authority (FINRA) for failing to supervise its personnel, in effect allowing its brokers to recommend unsuitable investments and churn customer accounts.

According to the Letter of Acceptance, Waiver and Consent (AWC), for a sixteen-month period, spanning October 2011 through February 2013, Cape’s supervisory system and written supervisory procedures, pertaining to the review of actively traded accounts, failed to adequately address and identify numerous items. According to FINRA, Cape’s supervisory policies and procedures failed to address (1) the process by which transactions are reviewed, (2) risks in customer accounts, and (3) methods by which Cape conducted its suitability analysis. According to the AWC, Cape never made use of clearing firm exception reports in their review of actively traded accounts and had no written supervisory procedures relating to the monitoring of complex trading strategies.

In addition, during the period of October 2011 through September 2012, registered representatives in Cape’s Manhattan branch conducted trades in several leveraged exchange traded funds (“ETFs”) and sold covered calls to customers. This trading activity caused customer accounts to have excessive turnover ratios, which indicates churning of customer accounts. According to FINRA, Cape did not inquire into the suitability of this trading activity despite all the indications of excessive trading and its awareness of the strategies being recommended.

shutterstock_173809013The Financial Industry Regulatory Authority (FINRA) sanctioned Rainmaker Securities, LLC (Rainmaker Securities) and its President Glen Anderson (Anderson) (Case No. 2013035059001) alleging that From June 2011 through September 2014, Rainmaker Securities, acting through Anderson, failed to devote adequate time, attention, and resources toward supervision. FINRA found that the firm’s lack of a culture of compliance, Rainmaker and Anderson repeatedly violated FINRA rules that required to: (i) establish and maintain a supervisory system reasonably designed to achieve compliance with securities laws and regulations; and (ii) establish, maintain and enforce written supervisory procedures to supervise its brokers.

Anderson began in the securities industry in 2005. In January 2010, Anderson joined Rainmaker Securities to become its President. Rainmaker became a FINRA registered firm on March 18, 2005, and is approved to conduct business in the origination and sale of private placements. Rainmaker Securities has six branches and 34 registered persons.

FINRA’s investigation related to many aspects of the sale of private placements including solicitation, due diligence, false advertising, suitability documents, and more. The various allegations largely regard Rainmaker Securities’ marketing and sales of the following private placement securities offerings: (a) Buttonwood Social Network Fund LLC (Facebook Fund); (b) Eudora Global LLC (Eudora Global); (c) The Incubation Factory Technology Fund, LLC (TIF Fund); and (d) The Idea Fund LLC (IDEA Fund).

shutterstock_174313244According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Michael Fasciglione (Fasciglione) has been the subject of at least 11 customer complaints and two regulatory actions. The customer complaints against Fasciglione allege a number of securities law violations including that the broker made unsuitable investments, unauthorized trading, and churning (excessive trading), breach of contract, breach of fiduciary duty, negligence, fraud, misrepresentation, and failure to supervise among other claims. The customer complaints stem from 1995 through 2014 and total allegations of investor losses of multiple millions of dollars.

Fasciglione’s first regulatory action occurred in 2004, when the NYSE initiated an action for alleging that Fasciglione failed to supervise the activities of an employee related to the business of his employer; failing to supervise accounts serviced by a registered representative under his control; failing to ensure proper authorization of account designation changes, along with several other allegations. As a result, of the complaint Fasciglione was suspended for two months and required to re-take any qualifying exams before undertaking any securities supervisory positions.

Fasciglione’s latest regulatory complaint alleges that in or about March 2010, while the IRS filed a $354,752 tax lien against Fasciglione for the tax years 2007 and 2008. An amended Form U4 was filed on November 26, 2012, but FINRA found that this filing was untimely.

shutterstock_184429547According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Judith Woodhouse (Woodhouse) has been barred for failing to respond to requests for information by the agency. The requests may have related to the reasons Securities America, Inc. (Securities America) gave for terminating Woodhouse’s employment. Upon termination from Securities America the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Woodhouse was due to allegations by the firm that Woodhouse violated the firm’s policies relating to the borrowing of funds and responding to supervisory requests.

In addition, to the most recent FINRA action and bar, Woodhouse has been the subject of at least one customer complaint involving a private placement. In addition, Woodhouse has several financial disclosures and two regulatory actions. Another FINRA action in 2013, concerned Woodhouse’s involvement in private securities transactions totally over $500,000 that were made without Securities America’s consent. This action resulted in a $10,000 fine and three month suspension.

It is important for investors to know that all advisers have an obligation and responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

shutterstock_180735251The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred David Chu (Chu) concerning allegations Chu refused cooperate with requests made by FINRA in connection with an investigation into possible outside business activities and private securities transactions. Such activities are often referred to as “selling away” in the industry. According to FINRA BrokerCheck records Chu has no outside business activities listed. It is unclear what businesses or investments FINRA’s investigation concerns.

Chu entered the securities industry in 2004, when he became associated with NYLife Securities LLC (NYLife). Chu held a Series 6 license which is a license that only allows the broker to sell investment companies (i.e. mutual funds) and variable contracts products. On March 16, 2015, NYLife filed a termination notice (known as a Form U5) with FINRA disclosing that Chu was discharged from the firm under circumstances that included a notification from the SEC that the agency was reviewing Chu’s books and records including his outside business activities and private securities transactions. NYLife conducted its own review and believed that Chu’s activities exceeded the scope of his approved activities with the brokerage firm.

According to FINRA, in April 2015, the agency began investigating whether Chu had engaged in outside business activities by soliciting investments or promissory notes. As part of its investigation FINRA sent a request to Chu for certain documents and information. According to FINRA, Chu provided a partial response to FINRA but thereafter through subsequent communications stated on a call with FINRA staff that he will not cooperate with the investigation. Consequently, Chu was barred by FINRA.

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